NBN Co’s Telstra bill may be $98 billion

blog Ever received one of those giant telephone bills from Telstra with a massive amount of extra fees which you never expected? Spare a thought for the National Broadband Network Company. Industry newsletter Communications Day has gotten its hands on a report compiled by investment bank Goldman Sachs which, for the first time, fully projects the amount NBN Co could be paying Telstra over the next half-decade for access to infrastructure such as pits and pipes. The newsletter reports (we recommend you click here for the full article):

“NBN Co could be liable to pay over $98 billion in total nominal pre-tax payments to Telstra over 55 years, according to advice provided for NBN Co’s board by Goldman Sachs in May last year.”

Personally I don’t really believe this figure to be entirely accurate. It looks as though Goldman Sachs has extrapolated the figure from NBN Co’s latest corporate plan and its current payments to Telstra for access to the former incumbent’s existing infrastructure. However, the initial deal with Telstra was signed under pretty unusual circumstances, and NBN Co had to do a lot to persuade Telstra to get its shareholders over the line. I suspect in the long-term that the price would not be quite this high.

However, it does make you think, doesn’t it? One suspects that the cost to the Federal Government would be substantially lower than $98 billion if it attempted to force Telstra to structurally separate its operations into wholesale and retail arms as other countries such as New Zealand and the UK have done, rather than spending all this money recreating a national telecommunications monopoly that will forcibly remove Telstra’s control of fixed-line telecommunications from it.

As I’ve written previously, coupled with regional subsidies to support bush broadband (again, as has happened in the UK), this would have been a more elegant solution to the long-term problem of Australia’s future telecommunications needs. It’s also what the rest of the telco industry has been calling for for years. But what do they know?

I thought it was setup by the selling of Telstra without first structurally separating it?

Sol Trujillo, whilst I’m not personally a fan of his, did what he had to do as the CEO of a private company tasked with making as much profit as possible for its shareholders and balancing that with the government regulations due to Telstra having a monopoly on infrastructure.

The catalyst was the sale, and implementation of the sale, of Telstra.

You have to look at the time element to put the figures into perspective. Quoting $2.9B 55 years from now in todays dollars is only $400m in todays terms, it’s just the ongoing leasing figure. Why not apply the same methods to $1B a year in copper maintenance, in 55 years that will be $7.5B a year in maintenance and we will have spent $245B on copper maintenance.

It just sounds like some creative number spinning to make to announcement of what they need to pay for HFC and copper seem smaller.

Part of the lease/contract is the requirement to be fit for purpose, which entails high maintenance and refurbishment and remediation costs on an ongoing basis, also ignored.

Besides the other huge benefit to Telstra will be that they will be shed of the liability and responsibility for all that asbestos in the pits and pipes, becomes the taxpayers liabilty

So if the whole intent is to delude us into believing it is economically better to buy out the copper and pits pipes etc, Crap that figure quoted will be a drop in the bucket compared with the real cost of maintaining and remediating that run down infrastructure over the same time frame

Any lease the government enters in to (rather than outright ownership) must be maintained for not just a few years. But for the life of FTTN and HFC.

It was bad enough that there was multi-billion dollar deal just to access ducts & infrastructure. If we lease the last mile, Telstra has and will retain leverage over NBNco. Like it does, right now.

If we buy, we’ll pay for maintenance for decades to come as the Government seeks to do exactly what Telstra did – eek out every last cent.

So we best get to like FTTN, as we’ll have it for some time to come.

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